With higher mortgage rates and cost of living pressures squeezing household budgets, this was a budget focused on stimulating the economy and creating jobs.
The Budget this week had little direct impact on the housing market. Stamp duty remains unchanged, and the only significant change for landlords is a lower level of tax-free gains before paying capital gains tax.
The Chancellor has focused the Budget on stimulating the economy and creating jobs, encouraging as many people as possible to stay in the workforce and contribute to filling the UK's 1 million job vacancies.
Focusing on economic growth and job creation ultimately benefits the housing market, as housing market health is directly related to economic health.
When the economy is doing poorly and unemployment is high, housing sales and prices tend to stagnate and fall, whereas the opposite is true when the labour market is strong and post-tax income is high.
The tax burden has risen for those with middle-to-high incomes, implying that post-tax disposable income has not increased in the last two years.
Household budgets are also being squeezed by rising living costs, so the Budget announcement of a three-month extension of support for home energy bills will be welcomed by many.
Higher mortgage rates have put additional pressure on first-time home buyers and those re-mortgaging. The fact that a large proportion of those with mortgages are on 5-year fixed rate deals is welcome news, but as they exit these deals, the increased monthly payments will hit monthly budgets.
Lenders and brokers are collaborating with those who are facing significant increases in mortgage payments to develop tailored solutions.
Mortgage rates for first-time home buyers have dropped back to 4.5%. This is significantly lower than the 6% highs seen at the end of last year, but it is still more than double mortgage rates from a year ago.
The housing market can withstand higher mortgage rates, and we have consistently argued that sub-5% mortgage rates would not result in significant price drops, which is now being confirmed.
New buyers, on the other hand, have 20% less purchasing power than a year ago. This does not mean that prices will fall by this much, but it does mean that people will look to buy smaller homes or relocate to areas that provide better value for money. Where funds are available, others may look to inject more equity into home purchases.
Overall, no one would argue that the best way to offset higher borrowing costs - and housing costs in general, including rents - is to help boost household incomes.
As a result of lower purchasing power, we have seen a gradual shift in demand towards flats as early 2023 home buyers sought better value for money.
We expect mortgage rates to remain in the 4-5% range through 2023, so those looking to relocate should not expect rates to fall significantly and should plan accordingly.
Affordability is a major issue in the housing market, particularly for those who rent or have small deposits to put down on a home. Rents are rapidly rising, up 11%, far outpacing earnings growth, which is currently at 6.7%.
Many younger buyers and renters of all ages are concerned about the lack of supply and the magnitude of recent rent increases. This is due to a lack of rental supply and a stagnation in the size of the private rented sector over the last six years.
Along with focusing on jobs and growth, the government must continue to prioritise increasing housing supply through the construction of new homes of all tenures. Only by increasing supply can we alleviate the market's affordability pressures.
Zoopla*
